India on Thursday approved a plan to allow foreign oil companies to store oil in the Padur strategic petroleum reserve, law minister Ravi Shankar Prasad said, as the world's third biggest oil importer seeks to cut storage costs.

Global oil producers, including Saudi Arabia, have shown interest in investing in India's strategic oil storage, which the country uses to hedge against energy security risks as it relies heavily on oil imports.

India has built emergency storage in underground caverns at three locations to hold 36.87 million barrels of crude. The underground 2.5 million tonne Padur strategic reserve in Karnataka has four compartments to hold about 18.5 million barrels of oil.

"Participation by foreign oil companies will significantly reduce budgetary support of government of India by more than 100 billion rupees ($1.38 billion) based on current prices," Prasad told a news conference. He said India would have the first right to the oil stored in the caverns in case of emergency.

India imports about 82 per cent of its crude requirements. It hopes to invite bids in three to four months to fill Padur, the chief executive of Indian Strategic Petroleum Reserve Ltd said last month.

The Padur site located is about 5km from the south west coast and 40km from the Mangalore Refinery and Petrochemicals Ltd's refinery.

India has already leased half of its Mangalore strategic petroleum reserve to Abu Dhabi National Oil Co (ADNOC) for seven years. ADNOC has been allowed to sell some of its oil from the storage to Indian refiners.

In the first phase, India has built three strategic petroleum reserves with combined capacity of 5.33 million tonnes, enough to meet demand for 9.5 days. In the second phase, the country is building two storage facilities with total capacity of 6.5 million tonne that could supply an additional 11.5 days of India's oil needs based on current consumption trends.